The new company, dubbed NewCo, will be based in Perth and listed on the ASX with a secondary listing on the Johannesburg stock exchange.

BHP Billiton's current chief financial officer Graham Kerr will be NewCo's first chief executive, while BHP's current head of investor relations Brendan Harris will become its chief financial officer.

BHP Billiton says the move will allow it to focus on its core iron ore, copper, coal petroleum and potash businesses.

BHP profit for past five years

2014: $US13.8 billion

2013: $US10.9 billion

2012: $US15.4 billion

2011: $US23.6 billion

2010: $US12.7 billion

Chief executive Andrew Mackenzie said the split would help BHP Billiton become a "simpler, more productive company".

"We plan to create an independent global metals and mining company based on a selection of high-quality aluminium, coal, manganese, nickel and silver assets," he said.

"Separating these businesses via a demerger has the potential to unlock shareholder value by allowing BHP Billiton to improve the productivity of its largest businesses more quickly."

BHP also followed the growing trend among resource companies to return more capital to investors with a 4 per cent increase in dividend to 121 US cents per share.

Plan has pros and cons, analysts say

In many ways, it is back to the future for the world's biggest miner. In 2001 it merged with South Africa's Billiton and acquired assets like aluminium smelters and coal mines in Africa.

Those now less profitable units will be spun off into the new company, which will have more than 24,000 employees and contractors globally.

Head of Resources Research at UBS, Glyn Lawcock, said not all of BHP's demergers have been successful, but this one is a good strategy.

"In our mind the spin-off does make sense. It's something we've been looking for for a couple of years now," he told the ABC.

Resources analyst from Morningstar, Mark Taylor, said there are pros and cons to BHP Billiton's plans.

"To some extent what you lose on one hand, you gain in the other," he said.

"BHP obviously thinks it's going to benefit from it in terms of portfolio simplification and there'll be some cost savings from a management point of view to be had.

"The downside, I guess, from a Newco perspective, is that it won't have quite the diversity and strength of earnings that BHP has had."

BHP still reviewing Nickel West: Mackenzie

BHP said it is still reviewing its West Australian nickel business, Nickel West.

On a conference call with journalists, Mr Mackenzie denied the exclusion of Nickel West from the new company indicated a lack of confidence in the business because of BHP Billiton's failure to sell it.

"I don't think its got anything to do with our confidence in the process of selling Nickel West," he said.

"We're trying to create simple companies that can be highly focused."

Mr Mackenzie said Nickel West did not fit into BHP Billiton or the new company.

"But I do believe there can be a fit with different kinds of companies," he said.

BHP shareholders in both the UK and Australia will hold shares in BHP Billiton and the new company.

BHP will help mum and dad investors in the United Kingdom sell their shares if they do not want to hold shares in the demerged group.

The demerger needs to be approved by investors and is expected to be completed in the first half of 2015.

The plan comes as aluminium and nickel prices have increased this year.

Nickel prices have jumped by one third because of an export ban by Indonesia and aluminium prices have increased by 15 per cent, according to financial data provider Thomson Reuters.

Free trade is the oldest argument in federal politics and the issue that literally defined the federation era but opposition exists to the TPP, courtesy of the Investor-State Dispute Resolutions clause.